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. Last Updated: 07/27/2016

Gazprom Bond Called Timely

An upcoming eurobond by gas monopoly Gazprom is likely to appeal to investors from all over the globe, but especially to Russians, analysts said Thursday.

Gazprom is expected to place a 10-year, $1 billion eurobond in February as the company tries to improve its debt profile by cutting short-term exposure.

"The timing is extremely good because at the moment Russian eurobonds as an asset class are very, very well bid, we have seen quite a bit of tightening of the yield. Now is a good time to place a large volume," said Stephen Evans, head of East European corporate debt research at ING in London.

Alexander Ovchinnikov, director of fixed-income research at Trust and Investment Bank, said yields on Russian sovereign debt had fallen while new issues were unlikely soon and the market was eager for fresh offerings.

"The only instrument which is good in all aspects is Russia's corporate debt," he said.

Analysts agreed the Gazprom bond would be easily placed at a yield of between 10.10 percent and 10.66 percent, which is in line with what the company is seeking.

David Ross, an emerging-market analyst at 4CAST, said Russians could snap up as much as 65 percent to 70 percent of the bond.

"Foreigners who are holding Russian risk at the moment are somewhat risk-averse, otherwise they might choose to be in Brazilian paper or something else," he said.

But other analysts saw keen interest in a Gazprom bond from North America and Asia.

"Quite a lot of recent new [Russian] issues went to the Far East. In North America, gradually the investor base is coming back again ... and then, of course, there is a traditional market in Europe," Evans said.

He said up to $200 million of the bond could go to cash-rich Russians, including private oil companies.

Zsolt Papp, a senior analyst at ABN-Amro, said the investor base would be wide because Gazprom was seen as a blue chip.

The size of the issue guaranteed liquidity and the fact that there was unlikely to be a sovereign debt issue this year added to Gazprom's attractiveness. "It is a very good opportunity for investors to get exposure to Russia," he said.

But Ovchinnikov said he believed the bulk would go to Russian banks, which are awash with funds they cannot place at home for the lack of instruments.

"I think the bond will be placed with much activity on the part of Russian clients, especially because Russians like Gazprom regardless of its debt strategy," he said.

He said one of the potential dangers for more risk-averse foreign investors could be that Gazprom had already been very active, issuing a stream of local and international debt.

4CAST's Ross said there was interest in Gazprom debt among those investors with a taste for riskier instruments.